Univ.of  111.  Library 


51 

3¥£7 


ARGUMENT 

OF 

! Hon.  John  M.  Hall, 

BEFORE  THE 

Judiciary  Committee  of  the  General  Assembly 

OF  CONNECTICUT, 

February  SOtlr,  1895, 

IN  BEHALF  OF 

THE  NEW  YORK,  NEW  HAVEN  AND 
HARTFORD  RAILROAD. 

AGAINST 

DOUBLB  TAXATION. 


ARGUMENT 


Hon.  John  M.  Hall, 

BEFORE  THE 

Judiciary  Committee  of  the  General  Assembly 

OF  CONNECTICUT, 

February  20th,  1895, 

IN  BEHALF  OF 

THE  NEW  YORK,  NEW  HAVEN  AND 
HARTFORD  RAILROAD, 

AGAINST 

double:  taxation. 


Mr.  Chairman  and  Gentlemen  of  the  Committee : 

In  presenting  to  you  such  suggestions  as  occur  to  me 
in  favor  of  the  petition  which  has  just  been  read,  I con- 
gratulate myself  that  I have  the  honor  of  addressing  a 
Committee  composed  entirely  of  lawyers,  and  especially 
this  Committee  where  the  atmosphere  is  not  entirely  un- 
familiar to  me,  for  I believe  that  on  the  six  occasions 
when  I have  served  in  one  branch  or  the  other  of  the 
General  Assembly,  it  was  my  privilege  to  sit  as  a member 
of  this  Committee  at  least  five’times. 

Representing  the  supreme  power  of  the  State,  making 
and  unmaking  Courts  and  Judges,  administering  both  law 
and  equity  in  the  broadest  sense,  it  is  peculiarly  the  Com- 
mittee to  investigate  and  determine  the  case  we  have  in 
hand  here  to-day.  The  question  involves  the  principles 
upon  which  the  State  levies  its  taxes  upon  railroad  cor- 
porations, the  laws  which  govern  the  administration  of 
those  principles,  and  the  equities  which  should  control  the 
State  in  the  exercise  of  its  wide  powers  of  taxation.  The 
subject  of  railroad  taxation,  I venture  to  suggest,  is  one  of 
those  by-paths  in  legal  lore  to  which  the  practicing  lawyer 
seldom  has  his  attention  called.  It  hardly  ever  comes  to 
the  attention  of  the  lawyer'  in  active  practice,  unless  for 
some  special  reason  his  attention  may  have  been  inci- 
dentally called  to  it. 

While  sitting  as  a member  of  this  distinguished  Com- 
mittee in  1881,  which  Committee  was  composed  of  such  men 
as  ex-Chief  Justice  Seymour,  Judges  Brewster,  Harrison, 
ex-Gov.  Morris,  Hon.  Charles  E.  Mitchell,  David  Booth, 
Judge  Merriman,  of  Meriden,  and  Judge  Northrop,  of  Mid- 
dletown, my  attention  was  specially  directed  to  this  subject 
by  a case  which  came  before  the  Committee  at  that  time, 
to  which  I desire  to  call  your  attention  immediately,  but 
before  that  I wish  to  say  at  the  threshold  of  this  discussion 


3 


that  the  basic  principle  underlying  all  taxation  in  Con- 
necticut has  been  from  an  immemorial  past  this:  That 
Connecticut  does  not  intend  to  exact  from  any  person  or 
corporation  in  this  State,  a tax  upon  property  which  lies 
wholly  without  its  territorial  limits,  and  this  principle  is 
embodied  in  Section  3830  of  the  General  Statutes,  which 
reads  as  follows: 

“ The  list  of  any  person  need  not  include  any  property 
situated  in  another  State,  when  it  can  be  made  satisfac- 
torily to  appear  to  the  Assessors  that  the  same  is  fully 
assessed  and  taxed  in  such  State,  to  the  same  extent  as 
other  like  property  owned  by  its  citizens.” 

This  was  the  principle  before  the  days  of  steam  rail- 
roads and  has  never  been  changed.  It  is  grounded  on 
justice  and  equity.  The  whole  system  of  railroad  taxation 
proceeds  upon  this  same  theory,  that  the  State  will  tax 
only  such  portion  of  the  property  of  a railroad  as  lies 
wholly  within  this  State.  In  the  language  of  Chief 
Justice  Park  in  the  case  of  the  State  of  Connecticut  vs.  The 
Housatonic  Railroad  Company,  found  in  48  Conn.,  p.  53, 
“ These  statutes  seek  to  ascertain  the  value  of  the  property 
of  the  railroad  companies  ‘lying  wholly  within  this  State 
devoted  to  railroad  purposes,  and  to  tax  that  value.’  ” 

When  all  the  property  of  the  railroad  lies  wholly 
within  this  State,  the  market  value  of  all  its  capital  stock 
and  the  par  value  of  its  funded  and  floating  indebtedness 
represent  the  amount  of  the  value  of  the  railroad  upon 
which  taxation  is  levied.  See  Sections  3919  to  3933, 
inclusive,  of  the  General  Statutes,  for  the  whole  subject  of 
railroad  taxation. 

Now,  in  case  a railroad  lies  partly  within  the  State  and 
partly  without  the  State,  Section  3921  provides  that  a tax 
of  one  per  cent,  upon  the  valuation  shall  be  assessed  only 
upon  such  portion  of  the  whole  valuation  as  the  length  of 
the  road  lying  in  the  State  bears  to  the  entire  length  of  the 
road,  showing  conclusively  that  the  whole  idea  and  purpose 
of  the  statutes  upon  this  subject  has  been  from  the  begin- 
ning to  tax  only  such  portion  of  the  property  as  lies  within 
the  State. 


4 


In  the  year  1880,  the  case  of  the  State  of  Connecticut 
vs.  The  Housatonic  Railroad  Company,  to  which  I have 
referred,  and  which  was  a case  where  the  Housatonic  Rail- 
road leased  certain  roads  in  Massachusetts  and  operated 
them  by  the  Connecticut  corporation,  and  claimed  under  the 
law  then  existing  that  it  had  the  right  to  deduct  for  the  pur- 
poses of  taxation  the  value  of  these  roads  on  the  ground 
that  they  owned  them,  which  was  not  literally  true, 
because  in  fact  they  leased  them,  the  Court  held  that 
in  the  absence  of  any  statute  whatever  affecting  leased 
lines  out  of  the  State  they  could  not  be  regarded  as  the 
owners  of  the  property,  although  in  equity  they  ought  not 
to  pay  the  tax  and,  therefore,  at  the  end  of  the  decision 
they  say  : 

“ So  far  as  the  defendants’  stock  has  been  increased  in 
value  by  their  interest  in  the  Massachusetts  roads,  and  so 
far  as  their  floating  debt  has  been  increased  by  the  making 
of  permanent  improvements  along  these  roads,  they  ought 
to  have  the  benefit  of  these  facts  in  a proportional  reduc- 
tion of  their  tax;  and  no  doubt,  if  the  matter  was  brought 
to  the  attention  of  the  Legislature,  a proper  reduction 
would  be  made.  But  the  Courts  have  no  power  to  do  equity 
in  the  matter.”  See  48  Conn.,  p.  57. 

Here  we  have  an  express  direction  of  the  Supreme  Court 
of  Errors  to  the  railroad  company,  defendant  in  that  case, 
to  bring  their  petition  to  this  tribunal  for  a remedy  and 
an  abatement  of  the  inequitable  tax  complained  of.  In 
1881,  therefore,  acting  upon  the  advice  of  the  Supreme 
Court,  the  Housatonic  Railroad  Company  brought  their 
petition  to  the  General  Assembly  for  an  abatement  and 
remission  of  the  taxes  in  question,  and  I had  the  honor,  as 
a member  of  the  Judiciary  Committee,  to  hear  that  case, 
and  it  was  unanimously  determined  by  the  Committee  that 
the  State  of  Connecticut  could  not,  in  honor,  exact  that 
tax  from  the  Housatonic  Railroad  Company,  and  upon 
report  of  the  Committee  the  judgment  of  the  Court  was 
set  aside  and  the  tax  was  remitted  by  the  Legislature, 
and  to  prevent  any  further  question  of  that  kind,  Section 
3923  of  the  General  Statutes  was  framed  by  that  Committee 
and  became  a part  of  the  General  Statutes  of  the  State. 
Section  3923  is  as  follows: 


5 


“ Every  railroad  company  in  this  State,  which  holds  by  . 
lease  or  otherwise,  a railroad  in  another  State,  which  is 
not  a part  of  its  own  road,  shall  state  in  its  annual  return, 
for  the  purposes  of  taxation,  how  much  of  its  funded  and 
floating  debt  was  occasioned  by,  and  how  much  of  its 
capital  stock  was  issued  for  any  amount  which  has  been 
expended  by  it  in  the  construction  or  permanent  improve- 
ment of  such  railroad  in  another  State,  or  in  the  purchase 
of  equipment  for  exclusive  use  thereon;  and  in  computing 
the  amount  of  tax  to  be  paid  by  said  company  to  this  State, 
the  amount  of  such  funded  or  floating  debt,  and  of 
such  stock  so  occasioned  or  issued  as  aforesaid,  shall  be 
first  deducted  from  the  total  amount  of  its  funded  and 
floating  debt  and  stock.” 

I beg  your  careful  examination  of  this  statute,  for 
under  its  provisions  we  claim,  both  as  a matter  of  law  and 
equity,  that  the  prayer  of  our  petition  should  be  granted. 
This  brings  me  at  once  to  the  consideration  of  the  exact 
state  of  facts  upon  which  our  claim  is  based.  On  March 
i,  1893,  The  New  York,  New  Haven  and  Hartford  Railroad 
Company  found  its  interests  suddenly  and  dangerously 
confronted  by  the  machinations  of  a railroad  wrecker  who 
had  obtained  control  of  certain  large  corporations  in 
another  state  and  threatened  to  control  the  Old  Colony 
Railroad,  which,  as  a terminal  of  the  great  New  Haven 
system  in  Boston,  had  become  an  important  factor  to  the 
prosperity  of  this  great  property.  The  danger  was  met  as 
soon  as  it  was  thoroughly  understood  and  as  a result  the 
Old  Colony  Railroad  Company,  lying  within  the  states  of 
Rhode  Island  and  Massachusetts,  leased  itself  to  the  Con- 
solidated Road  on  .the  1st  day  of  March,  1893,  and  on  the 
1st  day  of  July,  1893,  the  New  Haven  road  took  possession 
of  this  property  and  has  ever  since  operated  and  now 
operates  said  railroad  lying  principally  within  the  States 
of  Rhode  Island  and  Massachusetts,  a very  small 
portion  being  in  Rhode  Island,  which  lease  was 
almost  unanimously  approved  by  the  stockholders  of  both 
companies,  as  provided  by  the  statute.  No  portion 
of  said  Old  Colony  Railroad  lies  in  the  State  of  Connecti- 


6 


cut  and  all  the  property  of  said  Old  Colony  Railroad  Com- 
pany is  taxed  in  the  States  of  Rhode  Island  and  Massachu- 
setts under  the  statutes  of  those  states,  and  since  July  i, 
1893,  under  the  provision  of  the  lease  of  said  Old  Colony 
Railroad,  the  Consolidated  Railroad  has  paid  all  the  taxes 
levied  upon  said  property  by  said  States  of  Rhode  Island 
and  Massachusetts,  and,  while  said  lease  is  in  force,  is 
under  a continuing  obligation  to  pay  all  said  taxes.  In  the 
State  of  Massachusetts  where  the  stock  is  taxed,  all  the 
stock  of  the  Old  Colony  Railroad  is  taxed.  In  the  State  of 
Rhode  Island,  which  taxes  the  property  locally  in  every 
town,  all  the  property  of  the  Old  Colony  Railroad  lying  in 
that  State  has  been  taxed  and  paid  in  full.  To  confirm 
these  facts,  if  the  Committee  desires  proof,  we  have  with 
us  to-day  our  Treasurer  and  Comptroller  with  the  docu- 
ments to  show  this  fact  which  is  a very  important  one  in 
the  consideration  of  this  case.  So  that  every  item  of 
property  belonging  to  the  Old  Colony  Railroad  Company 
is  fully  taxed  in  the  States  of  Rhode  Island  and  Massachu- 
setts, within  which  states  it  is  wholly  located,  and  under 
the  obligations  of  the  lease  of  the  Old  Colony  Railroad  Com- 
pany these  taxes  have  been  paid  by  The  New  York,  New 
Haven  and  Hartford  Railroad  Company  as  they  became 
due. 

Now,  under  the  provision  of  the  General  Statutes  of 
this  State  previous  to  1889,  The  New  York,  New  Haven 
and  Hartford  Railroad  Company  acquired  by  lease  several 
railroad  properties  in  this  State  and  in  1889  the  Legislature 
granted  an  amendment  to  its  Charter  whereby  it  might 
exchange  its  stock  for  the  stock  of  said  several  leased 
lines  in  certain  proportions  to  be  determined  by  a commit- 
tee appointed  by  the  Governor.  This  amendment  affected 
lines  wholly  or  partly  within  this  State.  In  1893  another 
amendment  was  made  to  the  Charter  allowing  the  same 
exchange  of  its  stock  for  the  stock  of  any  lease  line  loca- 
ted wholly  in  an  adjoining  state.  Acting  under  this 
authority  The  New  York,  New  Haven  and  Hartford  Rail- 
road Company  exchanged  before  September  30,  1893,  34,515 
shares  of  its  stock  for  38,350  shares  of  Old  Colony  stock  in 


7 


the  proportion  of  ten  shares  of  Old  Colony  stock  for  nine 
shares  of  New  York,  New  Haven  and  Hartford  stock. 
These  shares  of  stock  so  issued  by  the  New  York,  New 
Haven  and  Hartford  Railroad  Company  in  exchange 
for  Old  Colony  stock  were  issued  solely  for  the  prop- 
erty of  a leased  road  lying  wholly  without  this  State  and 
said  New  York,  New  Haven  and  Hartford  Railroad  became 
thereby  an  equitable  tenant  in  common  or  joint  owner 
with  the  other  stockholders  of  the  Old  Colony  Railroad 
after  payment  of  its  debts,  and  its  interest  and  owner- 
ship in  that  property  is  represented  by  said  34,5 15  shares 
of  its  capital  stock  so  issued  in  exchange  for  the  stock  of 
the  Old  Colony  Railroad. 

Among  the  earliest  of  the  duties  which  were  assigned 
me  after  my  official  connection  with  the  Consolidated 
Road  was  the  supervision  of  making  up  its  returns  for 
taxation,  and  the  question  at  once  arose  as  to  what  dis- 
position should  be  made  of  the  34,515  shares  issued  in 
exchange  for  Old  Colony  Stock.  It  was  a new  question, 
for  it  was  the  first  return  to  be  made  under  the  lease  of  the 
Old  Colony  Road.  Upon  consulting  the  Massachusetts 
statutes  and  by  correspondence  with  the  Tax  Department 
of  that  State  it  appeared  that  the  whole  stock  of  the  Old 
Colony  Road  must  be  taxed  in  Massachusetts.  The 
authorities  there  claimed,  and  justly,  that  no  abatement 
could  or  would  be  made  by  Massachusetts  on  account  of 
the  Old  Colony  stock  exchanged  for  New  York,  New 
Haven  and  Hartford  stock,  because  the  stock  still  existed 
and  under  the  laws  of  Massachusetts  was  still  taxable  in 
that  State,  and  that  Connecticut  ought  to  abate  the  tax  on 
the  New  York,  New  Haven  and  Hartford  stock  which  had 
been  issued  only  in  exchange  for  the  Old  Colony  stock. 
We  made  our  returns  therefore  to  the  Board  of  Equaliza- 
tion, claiming  an  exemption  of  these  shares,  but  the  Board 
said  that,  while  they  considered  that  our  claim  was  just 
and  equitable  and  that  we  were  evidently  the  victims  of 
double  taxation,  and  it  was  unjust  for  the  State  to  exact 
this  tax,  yet  under  the  strict  letter  of  the  statute,  they 
could  not  relieve  us.  In  taking  this  position,  I believe  the 


Board  was  mistaken.  I am  confident  that  any  fair  con- 
struction of  Section  3923  clearly  exempts  these  shares 
from  taxation.  May  I be  pardoned  for  turning  the  atten- 
tion of  the  Committee  for  a moment  to  a few  familiar 
principles  which  should  govern  in  the  construction  of 
statutes  of  this  character  ? 

1st.  To  arrive  at  the  true  meaning  of  a statute,  it  is 
necessary  to  take  a broad,  general  view  of  the  whole  act 
so  as  to  get  an  exact  conception  of  its  aim,  scope  and 
object.  Endlich  on  Interpretation  of  Statutes  Sec.  27. 
The  true  meaning  of  a statute  is  discerned  not  merely 
from  its  words  but  also  by  comparison  with  other  parts  of 
the  act,  by  reference  to  previous  legislation  upon  the  same 
subject,  and  by  ascertaining  the  cause  and  occasion  of  the 
passage  of  the  act  and  the  purpose  intended  to  be  accom- 
plished. City  of  Middletown  vs.  N.  Y.,  N.  H.  & H.  R.  R. 
Co.,  62  Conn.,  p.  496. 

Applying  these  standards  of  interpretation,  can  anyone 
doubt  for  a moment  the  object  and  purpose  of  the  Legis- 
lature in  passing  the  act  of  i88r,  now  Section  3923  of  the 
General  Statutes?  Its  sole  object  and  purpose  was  to 
exempt  from  taxation  all  railroad  property  lying  in 
another  State  leased  and  operated  by  any  railroad  com- 
pany in  this  State.  It  admits  of  no  other  interpreta- 
tion and  the  history  of  the  statute  and  the  cause  and  occa- 
sion of  its  passage  was  solely  and  only  to  protect  from 
double  taxation  any  railroad  company  in  this  State  which 
operated  under  lease  a railroad  company  in  another  State. 
While  I am  aware  that  in  a few  jurisdictions  in  the  United 
States  and  elsewhere,  it  is  held  that  statutes  imposing 
public  burdens  in  the  form  of  taxes  are  to  be  strictly  con- 
strued, yet,  in  many  more  cases  the  decisions  of  the  United 
States  Courts  hold  clearly  that  a liberal  construction  should 
be  given  to  such  statutes,  but  whatever  may  be  the  rule  in 
other  jurisdictions,  nowhere  has  the  law  upon  this  subject 
been  more  fairly  and  justly  expounded  than  by  our 
Supreme  Court.  In  the  case  of  Hubbard  vs.  Brainard,  35 
Conn.,  p.  568,  a Middletown  case  involving  a pure  question 
of  taxes,  with  which,  doubtless,  the  House  Chairman  is 


9 


familiar,  Chief  Justice  Butler  in  giving  the  opinion  of  the 
Court,  laid  down  the  rule  for  the  construction  of  acts  of 
this  character  as  follows  : 

“ The  parties  are  at-  issue  in  respect  to  the  rule  of  con- 
struction which  should  be  applied  to  the  act  under  which 
the  assessment  is  made.  We  have  no  difficulty  as  to  the 
rule  applicable  in  such  cases. 

“A  law  imposing  a tax  is  not  to  be  construed  strictly, 
because  it  takes  money  or  property  in  invitum  (although  its 
provisions  are  for  that  reason  to  be  strictly  executed),  for 
it  is  taken  as  a share  of  a necessary  public  burden;  not 
liberally  like  laws  intended  to  effect  directly  some  great 
public  object;  but  ‘ fairly  ’ for  the  Government  and  ‘justly  ’ 
for  the  citizens;  and  so  as  to  carry  out  the  intention  of  the 
Legislature,  gathered  from  the  language  used,  read  in  con- 
nection with  the  general  purpose  of  the  law,  and  the  nature 
of  the  property  on  which  the  tax  is  imposed,  and  of  the 
legal  relation  of  the  tax  payer  to  it.” 

“A  construction  of  a statute  which  subjects  property  to 
double  taxation  should  always  be  avoided  if  practicable.” 

Osborn  vs.  Railroad,  40  Conn.,  p.  491. 

See  also  Savings  Bank  vs.  Nashua,  46  N.  H.,  p.  389. 

“ It  is  a fundamental  principle  in  taxation  that  the 
same  property  shall  not  be  subject  to  a double  tax  payable 
by  the  same  party  either  directly  or  indirectly.” 

Applying  these  righteous  rules  of  construction,  laid  down 
by  our  own  Supreme  Court,  to  Section  3923,  it  seems  to  me 
that  the  Committee  must  find  that  our  claims  for  exemp- 
tion under  the  provision  of  this  section  are  clearly  within 
the  intention  of  the  Legislature  when  it  passed  the  act  of 
1881.  We  have  here  a railroad  company,  holding  by  lease 
a railroad  in  another  State  which  is  not  part  of  its  own 
road.  We  find  that  it  has  issued  stock  expressly  and  only 
for  the  purpose  of  exchanging  such  stock  for  the  stock  of 
said  leased  road.  Under  this  statute  it  is  perfectly  clear 
that  if  the  34,515  shares  so  issued  had  been  issued 
for  the  express  purpose  of  constructing  the  Old 
Colony  Railroad,  or  any  part  thereof,  no  question 


10 


could  be  raised  under  the  most  strict  construction  of 
the  statute.  It  is  true  that  the  shares  of  stock  in  question 
were  not  issued  for  the  direct  purpose  of  constructing  the 
Old  Colony  Railroad  in  Massachusetts,  but  what  differ- 
ence can  it  make  in  ascertaining  whether  the  property 
taxed  is  within  or  without  State  lines,  whether  the  com- 
pany paid  the  contractors  who  made  the  improvements  or 
the  stockholders  who  paid  the  contractors  ? This  stock  so 
issued  represents  money  expended  on  a leased  railroad  in 
Massachusetts  and  represents  nothing  else.  If  that  por- 
tion of  the  property  of  the  Old  Colony  Railroad  is  not 
represented  in  this  issue  of  the  New  York,  New  Haven 
and  Hartford  stock,  it  is  represented  in  nothing.  It 
comes,  therefore,  as  it  seems  to  me,  clearly  within  the 
intent  and  purpose  of  this  statute  under  any  fair  and  rea- 
sonable construction  that  can  be  given.  The  petitioners 
therefore  should  have  the  benefit  of  their  investment  in 
untaxable  property  out  of  the  State  whereby  its  invest- 
ment may  be  treated  as  capital  stock  issued  for  the  con- 
struction of  a leased  line.  The  Board  of  Equalization 
should  have  so  construed  this  statute  as  to  carry  out  the 
fair  intent  and  purpose  of  the  Legislature  that  passed  it, 
and,  in  failing  so  to  do,  in  my  judgment,  committed  an 
error.  The  construction  for  which  I contend,  can  alone 
prevent  a gross  injustice  to  the  largest  revenue  producing 
corporation  the  State  posesses. 

The  State  of  Connecticut,  in  1881,  when  it  passed  Sec- 
tion 3923  of  the  statutes,  practically  decided  this  case,  by 
holding  that  stock  or  bonds  of  a railroad  corporation  in 
this  State,  which  represented  and  stood  for  railroad 
property  in  another  State,  ought  not  to  be  taxed.  It  is 
only  a peculiar,  technical  omission  in  the  letter  of  the 
statute  of  1881  which  gives  the  State  Board  of  Equaliza- 
tion an  excuse  for  saying  that  the  letter  of  the  statute 
calls  for  the  payment  of  the  tax  in  this  case. 

But  what  is  the  legal  position  of  the  State?  Can  it 
maintain  a suit  successfully  against  the  Railroad  Com- 
pany in  our  own  Supreme  Court,  or  in  the  Supreme  Court 
of  the  United  States  ? 


11 


♦ 


U,  OF  lit  U& 


Railroads  are  real  estate,  and  should  be  taxed  in 
accordance  with  the  rules  governing  taxation  of  real 
estate,  provided  the  law  taxes  the  property,  and  there  is 
no  doubt  that  in  Connecticut  our  railroad  tax  is  a tax  on 
property  and  not  a tax  on  the  corporation  as  such,  or  its 
franchises. 

Property  of  corporations,  if  taxed  as  property,  should 
be  taxed  the  same  as  the  property  of  private  individuals, 
and  therefore  its  real  property  should  be  taxable  where 
it  lies. 

See  Cooley  on  Taxation,  2d  Edition,  p.  377. 

Baldwin  vs.  Trustees,  37  Mass.,  369. 

People  vs.  McLean,  80  New  York,  254. 

Real  estate  within  the  State  taxed  under  local  laws  must 
be  taxed  as  a general  rule  only  in  the  town  for  town  pur- 
poses, county  for  county  purposes,  school  district  for  school 
purposes,  in  which  the  real  estate  lies.  By  the  same  rule 
the  real  estate  of  an  individual  or  corporation  can  only  be 
taxed  for  such  purposes  in  the  State  where  it  lies. 

See  Ham  vs.  Sawyer,  36  Me.,  37. 

Rowe  vs.  Blakeslee,  n Conn.  479. 

People  vs.  Pearis,  et  al,  37  Cal.,  259. 

The  General  Assembly  of  the  State  cannot  authorize 
a municipal  corporation  to  tax  for  its  own  local  purposes, 
lands  lying  beyond  the  property  limits  of  such  munici- 
pality. 

Wells  vs.  City  of  Weston.  22  Mo.,  385. 

Cooley  on  Taxation,  2d  Edition,  pp.  159-163. 

Cooley  on  Constitutional  Limitations,  page  500. 

It  is  clear  that  if  a State  cannot  authorize  a municipal 
corporation  to  tax  for  its  own  purpose,  lands  beyond  the 
limits  of  the  municipality,  then  the  State  itself  cannot  tax 
lands  or  real  estate  outside  of  its  jurisdiction  for  such 
purposes. 

The  Supreme  Court  of  the  United  States  almost  invari- 
ably holds  that  the  construction  which  the  highest  Court 
of  the  State  puts  upon  its  own  constitution  or  laws,  will  be 


12 


followed  by  the  Supreme  Court  of  the  United  States  in 
determining  what  construction  should  be  put  upon  the  same 
constitution  or  laws.  If  the  Supreme  Court  of  Connecti- 
cut had  treated  our  steam  railroad  tax  as  a tax  upon  fran- 
chise returned  upon  property,  then  the  State  of  Connecti- 
cut might  possibly  maintain  a suit  against  the  New  York 
and  New  Haven  Railroad  for  the  Old  Colony  taxes. 

But  our  Court  has  settled  this  action  in  the  case  of 
Nichols  vs.  The  New  Haven  & Northampton  Co.,  42  Conn., 
pp.  103,  1 19,  where  it  holds  in  the  strongest  terms  that  our 
steam  railroad  tax  is  a tax  upon  property.  This  decision 
was  strongly  re-affirmed  in  the  case  of  the  State  vs.  The 
Housatonic  Railroad  Co.,  48  Conn.,  pp.  44  and  53.  So  far 
as  our  Court  is  concerned,  Connecticut  is  tied  up  to  the 
doctrine  that  this  is  a property  tax. 

The  foregoing  doctrine,  is  fully  supported  by  the  fol- 
lowing cases  : 

Northern  Central  Railroad  Co.  vs.  Jackson,  7 Wallace,  262, 
267,  268. 

The  State  Tax  on  Foreign  Bond,  15  Wallace,  300,  318,  320, 
etc. 

Home  Insurance  Co.  vs.  New  York,  134  U.  S.,  594,  601,  602, 
606. 

State  vs.  Stonewall,  Insurance  Co.,  89  Ala.,  335. 

Commonwealth  vs.  Standard  Oil  Co.,  101  Pa.  St.  Reports, 
U9,  147. 

It  is  apparent  from  these  authorities  that  the  State  of 
Connecticut  can  be  thoroughly  beaten  upon  the  legal  issue 
in  the  Supreme  Court  of  the  United  States,  unless  the 
Court  is  prepared  to  reverse  the  whole  current  of  its  deci- 
sions for  the  last  thirty  years.  If,  therefore,  the  State 
should  refuse  to  correct  the  mistake  in  its  laws  at  the 
present  time,  or  should  attempt  to  push  the  suit  now  pend- 
ing against  the  Railroad  Company  to  collect  this  illegal 
and  unconstitutional  tax,  I am  confident  it  will  meet  defeat 
in  the  Courts,  and  incur  large  costs  and  expenses  of  litiga- 
tion. 

But,  even  if  the  Committee  should  adopt  a different  con- 
struction of  the  statute  and  the  law,  from  that  which  I claim 


13 


to  be  proper  and  reasonable,  there  is  yet  another  method 
by  which  the  injustice  of  double  taxation  may  still  be 
avoided  under  the  provisions  of  the  company’s  Charter, 
which  gave  the  company  power  to  exchange  these  shares 
for  the  shares  of  leased  lines.  The  amendment  of  the 
company’s  Charter,  passed  in  1889,  shows  clearly  that  the 
Legislature  intended  to  guard  against  double  taxation  of 
exchanged  shares  by  relieving  the  company  from  taxation 
of  the  stock  of  its  leased  lines.  See  Special  Laws,  Vol.  X. 
p.  1298,  par.  3. 

This  section  then  applied  only  to  leased  lines  wholly  or 
partly  within  this  State,  but  in  1893,  the  provision  of  that 
amendment  was  made  to  apply  to  leased  lines  located 
wholly  in  adjoining  States.  See  Special  Laws  1893,  p.  343. 

Now  if  the  company  cannot  get  from  the  State  the  ben- 
efit which  it  gets  from  the  exemption  of  the  property  of 
its  leased  lines  in  the  State  out  of  the  exchange  of  its 
shares  for  shares  of  a leased  line  in  an  adjacent  State, 
because  those  lines  do  not  pay  taxes  here  at  all,  is  it  not 
perfectly  clear  that  the  benefit  should  be  given  to  the  com- 
pany in  the  way  indicated  by  treating  the  shares  of  its 
capital  stock  issued  to  represent  property  in  Massachusetts 
as  shares  to  be  deducted  from  its  capital  stock  to  be  valued 
for  taxation  of  property  in  Connecticut?  The  company, 
as  I have  said  before,  is  virtually  an  equitable  owner  of 
one-  third  of  the  property  of  the  Old  Colony  Railroad, 
after  paying  debts  and  the  muniment  of  its  title  to  that 
property  is  these  exchanged  shares,  and  they  make  a title 
as  good  as  the  title  made  by  a deed,  and  the  issue  of  the 
company’s  own  stock  for  them  represents  the  title  which 
these  exchanged  shares  of  the  Old  Colony  represented 
and  nothing  else.  Unless  the  Consolidated  road  is  relieved, 
the  inevitable  result  follows  that  it  is  forced  to  pay  taxes 
on  its  property  out  of  the  State,  as  it  cannot  include  its 
leased  line  mileage  or  a part  of  the  mileage  of  its  road  in 
getting  at  the  proportion  of  its  property  which  Connec- 
ticut may  tax.  No  fair-minded  citizen  of  Connecticut 
would  approve  such  an  injustice  to  any  corporation  or 
individual.  So  that  under  the  provisions  of  our  Charter 


14 


we  claim  a guarantee  of  immunity  from  taxation  upon 
such  shares  of  our  stock  as  were  issued  exclusively  for  the 
shares  of  the  stock  of  any  leased  line  out  of  the  State. 

If  the  Committee  should  still  disagree  with  me,  which  I 
cannot  conceive,  as  to  the  effect  of  the  chartered  rights  of 
this  company  in  protecting  them  from  this  proposed  taxa- 
tion, it  is  still  in  the  power  of  this  Committee  to  exercise 
the  equitable  powers,  which  from  our  earliest  history  has 
reposed  in  this  General  Court,  to  protect  the  petitioner 
from  the  injustice  and  unconstitutionality  of  double  taxa- 
tion. Previous  to  the  adoption  of  our  Constitution  this 
was  the  General  Court  wherein  all  equitable  remedies  were 
administered.  Under  our  Constitution,  the  power  of  the 
General  Assembly  to  administer  equity  still  remains  and  has 
always  been  freely  exercised  to  prevent  irreparable  wrong. 
No  other  provision  exists  for  an  appeal  to  any  other  tri- 
bunal from  the  doings  of  the  Board  of  Equalization.  Here 
and  here  alone  relief  can  be  granted.  That  the  wrong 
exists  is  admitted.  The  Board  of  Equalization,  to  which 
this  matter  came  in  their  official  capacity,  agree  that  this 
proposed  tax  upon  these  shares  in  question  is  inequitable 
and  unjust.  They  are  here  to-day  to  say  that  it  is  a tax 
that,  in  justice  and  equity,  ought  not  to  be  enforced.  The 
recently  elected  Board  of  Equalization,  who  have  also  had 
their  attention  called  to  this  matter,  and  with  their  counsel 
have  carefully  examined  it,  are  also  here  to  say  to  you  that 
the  enforcement  of  this  tax  would  be  a wrong  and  an 
injustice.  Can  a clearer  case,  therefore,  be  made  before 
any  tribunal  for  equitable  relief,  than  that  which  is  now 
presented  for  your  consideration  ? 

Can  you  hesitate  for  a moment  in  granting  the  relief 
the  petitioner  demands  ? The  great  corporation,  with 
whose  management  I have  the  honor  to  be  identified,  is 
not  here  asking  for  a donation  from  the  State.  It  is  here 
as  the  humblest  citizen  of  Connecticut  might  come  asking 
from  the  sovereign  power  relief  from  an  injustice.  It 
makes  no  claim  to  the  fact  that,  in  1893,  it  paid  into  the 
Treasury  of  this  State  by  .itself  and  the  lines  it  controls, 
the  sum  of  $537,398-°4,  and,  in  1894,  the  sum  of  $551,140.06, 


15 


exclusive  of  the  taxes  now  in  question.  It  makes  no  claim 
to  the  fact  that  it  pays  one-third  of  the  entire  taxes  of  the 
State,  and  soon  will  pay  much  more,  for  it  pays  these 
taxes  willing^  because  they  are  just  under  the  law.  It 
recognizes  and  acts  upon  the  principle  that  whatever  min- 
isters to  the  prosperity  of  the  State  and  its  people  minis- 
ters to  its  own  prosperity,  but  it  does  and  it  will  protest 
against  and  will  resist  by  all  lawful  means  the  imposition 
of  any  tax  imposing  upon  it  a tax  not  levied  upon  any 
other  individual  or  corporation  in  the  State.  It  cannot 
believe  that  the  State  of  Connecticut  will  deal  so  un- 
fairly with  its  largest  tax  payer.  This  good  old 
State  cannot  afford  to  be  niggardly  and  oppressive 
in  its  exactions  and,  in  honor  and  justice,  cannot 
touch  one  penny  of  this  tax  in  question.  Did  you  ever 
think  that  the  so-called  Consolidated  Road  is  but  a private 
corporation  so  far  as  its  ownership  and  internal  manage- 
ment is  concerned?  That  its  stock  is  held  by  our  great 
charitable  and  educational  institutions,  by  your  savings 
banks  and-trust  companies,  by  your  life  and  fire  insurance 
companies  and  is  the  sole  income  of  thousands  of  widows 
and  orphans  and  that  the  administration  of  its  affairs  is  a 
sacred  trust,  and  that  whenever  and  wherever  the  State 
lays  its  burden  upon  this  corporation  it  is  casting  it 
directly  upon  these  stockholders  whose  interests  must 
suffer  precisely  as  the  burden  is  increased? 

But  not  only  that,  it  is  bad  policy  for  the  State,  for  it 
tends  to  lessen  the  market  value  of  the  stock  and  thus 
decreases  the  amount  upon  which  the  State  can  levy  its 
tax  and  therefore  to  lessen  the  amount  the  State  will 
receive  from  this  company  in  taxes.  Let  the  farmers  and 
business  men  of  this  Legislature  remember  that  if  no 
town  in  Connecticut  is  taxed  to-day  it  is  because  the  large 
corporations  of  the  State  are  bearing  the  entire  expense 
of  the  State  government.  It  is  a homely  adage  but  a very 
wise  precaution  “not  to  kill  the  goose  that  lays  the  golden 
egg.” 

Let  them  further  remember  that  our  Supreme  Court 
has  expressly  found  that  the  taxes  upon  the  property  of 

16 


steam  railroads  is  already  higher  than  that  upon  other 
property,  and  I believe  higher  in  proportion  than  upon 
other  corporations..  In  Osborn  vs.  R.  R.  Co.  40  Conn.  p. 
494,  Carpenter  J.  says: 

“The  tax  imposed  upon  the  railroad  company  is  a 
searching  one.  Nothing  escapes  its  grasp.  The  market 
value  of  the  stock  includes  not  only  all  its  property  but  all 
its  rights  and  franchises,  including  all  its  advantages  and 
facilities  for  earning  money.  To  that  value  is  added  the 
amount  of  its  funded  and  floating  debt,  with  no  deduction 
except  the  amount  of  cash  on  hand.  On  the  other  hand, 
we  cannot  shut  our  eyes  to  the  fact — and  presumptively 
the  Legislature  did  not — that  real  estate  pretty  uniformly 
goes  into  the  tax  list  at  much  less  than  its  real  value. 
The  same  is  true  to  a considerable  extent  of  personal 
property,  while  a large  amount  of  personal  property 
escapes  taxation  altogether.  No  man’s  faculty  is  taxed 
directly  or  indirectly,  and  deductions  are  allowed  on 
account  of  indebtedness.  We  think  therefore  it  is  safe  to  assume 
that  taxation  upon  railroad  property  is  considerably  above  the  aver- 
age rate  of  taxation  throughout  the  State.  We  do  not  complain  of 
this  as  unjust , but  surely  courts  should  not  be  eager  to  adopt  a con- 
struction which  will  increase  rather  than  diminish , the  inequality  of 
taxation .” 

The  imposition  of  this  tax  impairs  to  its  extent  the  future 
prosperity  of  this  great  company.  It  is  a severe  reflection 
upon  the  policy  of  the  company  in  acquiring  the  control  of 
the  Old  Colony  Railroad  under  its  lease.  The  Old  Colony 
lease  was  a lease  most  beneficial  to  the  State  of  Connecticut 
It  has  steadied  and  strengthened  our  own  corporation  so 
that  it  will  always  be  able  to  command  a business  which 
will  keep  it  in  such  order  as  to  afford  first  class  facilities 
to  all  the  people  of  Connecticut,  for  Connecticut  is  and  al 
ways  will  be,  while  the  prosperity  of  this  corporation  con- 
tinues and  its  broad  policy  is  enforced,  the  great  highway 
over  which  must  travel  the  additional  volume  of  business 
which  that  lease  has  forever  insured.  Better  and  more 
frequent  train  service,  cheaper  rates  of  freight  and  fare, 
better  facilities  for  the  merchant  and  manufacturer,  are 


7 


made  possible  only  by  the  vast  volume  of  business  which 
this  lease  has  insured.  Coal,  iron  and  raw  materials,  and 
the  products  of  the  West  and  South  are  brought  to  the 
doors  of  every  citizen  of  Connecticut  over  the  best  con- 
structed railway  on  this  continent,  at  a cheaper  rate  than 
ever  before.  Can  it  be  the  policy  of  Connecticut  to  place 
a single  obstacle  in  the  way  of  the  broad  policy  of  a cor- 
poration which  directly  and  indirectly,  is  bringing  pros- 
perity to  the  hundreds  of  towns  and  cities  that  have 
sprung  into  existence  along  its  lines  and  to  the  people  of 
the  entire  State  whether  traversed  by  its  lines  or  not  ? 

In  transportation  the  price  at  which  freight  and  passen- 
gers can  be  reasonably  transported,  depends  largely  upon 
the  volume  dealt  with.  The  more  certain  the  future  busi- 
ness of  any  road  can  be  made  by  its  control  of  connections 
the  greater  the  volume  of  business  which  can  be  controlled, 
and  the  cheaper  or  better  or  both,  will  be  the  facilities  that 
can  be  furnished  the  public.  All  this  has  been  accom- 
plished by  the  policy  heretofore  adopted  and  still  pursued 
by  the  New  York,  New  Haven  and  Hartford  Railroad  Com- 
pany. Marvellous  as  has  been  the  growth  of  this  great 
corporation,  the  child  of  Connecticut,  it  is  far  from  that 
stalwart  growth  that  awaits  it,  if  Connecticut  is  wise 
in  its  legislation  and  policy  towards  it.  The  imposition 
of  this  tax  is  a menace  to  its  future  progress  and  it 
seems  to  me  cannot  be  justified  by  any  intelligent  man 
who  examines  this  question.  The  press  of  the  State  so  far 
as  I have  observed,  are  unanimous  in  advocating  the  relief 
which  the  petitioner  asks  here  to-day.  It  may  be  suggested 
to  this  Committee,  and  it  is  a fact  which  I ought  in  fairness 
to  bring  to  their  attention,  that  a suit  was  commenced  by 
the  late  Treasurer  against  this  petitioner,  to  collect  the 
tax  in  question.  It  is  fair,  however,  to  say  that  before  that 
suit  was  begun,  this  petition  was  brought  to  this,  the 
highest  tribunal  in  the  State,  in  pursuance  of  the  recom- 
mendation of  the  Supreme  Court  in  the  Housatonic 
case  for  relief,  so  that  this  Committee  cannot  fairly  wave 
off  the  petitioner  and  say  that  this  case  is  pending  in 
court,  because  this  General  Assembly  had  original  jurisdic- 


18 


tion  in  this  case  before  any  suit  was  brought  in  the  Supe- 
rior Court,  and  I trust  that  no  such  suggestion  as  this  will 
be  entertained  by  this  Committee. 

It  may  be  suggested  that  the  Treasury  of  the  State 
is  in  such  condition  that  this  amount,  which  is  very 
small  in  comparison  to  the  large  tax  this  company 
yearly  pays  into  the  State  Treasury,  ought  to  be  col- 
lected even  though  it  may  not  be  equitable  and 
just.  Such  a suggestion  as  that,  I am  sure  every 
man  on  this  Committee  would  spurn  with  indignation. 
The  State  of  Connecticut  can  never  be  so  poor  as  know- 
ingly to  levy  and  collect  an  unjust,  inequitable  and  illegal 
tax  from  any  of  its  citizens  or  corporations.  It  never  has 
been  guilty  of  such  gross  injustice,  and  it  never  inten- 
tionally will  be. 

In  reading  the  petition  you  will  observe  that  it 
calls  for  an  amendment  to  Section  3923  of  the  Gen- 
eral Statutes,  in  order  that  this  question  may  not  arise 
again  with  any  future  Board  of  Equalization.  I have  pre- 
pared a bill  which  I now  submit  to  you,  adding  two  or  three 
lines  to  the  General  Statutes,  and  providing  that  this 
statute  shall  apply  to  the  returns  of  any  railroad  company 
heretofore  made  for  the  years  1893  and  1894,  which  I 
believe,  if  you  accept,  will  cover  the  claims  of  our  petition. 

The  remission  of  the  tax  asked  for  affects  only  the  tax 
for  1893  and  1894  upon  the  shares  of  stock  issued  by  the 
petitioner  solely  for  the  stock  of  the  old  Colony  road 
before  December  19th,  1893,  when  the  time  for  such  ex- 
change expired. 

In  closing,  allow  me  to  Thank  you,  gentlemen,  for  your 
patience  in  listening  so  long  to  this  somewhat  dry  discus- 
sion. I assure  you  that  nothing  but  the  importance  of  the 
question  to  the  corporation  I represent,  would  excuse  or 
justify  it,  but  considered  from  our  standpoint  it  is  to  us  a 
most  important  matter.  I am  confident  that  your  examin- 
ation of  this  question  will  convince  each  of  you  as  it  has 
every  other  intelligent  person  to  whom  it  has  been  pre- 
sented, so  far  as  I am  aware,  of  the  absolute  justice  and 
integrity  of  the  claim  we  make  for  a remission  of  the 
tax  involved. 


19 


Hall,  K Joha  Manning 

Argument  before  the  Judiciary 
committee  of  the  general  assembly 
of  Connecticut,  February  20th,  1895, 
in  behalf  of  the  New  York,  New  ^aven 
and  Hartford  railroad  against  double 
taxation. 


3457 


New  York  Central  & Hudson  River  R.R 


/ 


c c r'L-'YX  < 


